Foreign direct investment in Latin America and the Caribbean increased by 55.2% in 2022 over its 2021 level, thus reaching its maximum historical value. This is according to a report published on July 10, 2023, by the Economic Commission for Latin America and the Caribbean (ECLAC).
According to the report, Latin American and Caribbean countries received approximately US $225 billion of foreign direct investment (FDI) in 2022. This figure represents the highest dollar value since records have been kept. This influx of FDI has been achieved due to “the growth of all investment components, especially the reinvestment of profits and the rise in the service sector in the region.”
Recovery and opportunities for investment in Latin America and the Caribbean
The study recalls that foreign direct investment in Latin America and the Caribbean had not exceeded US $200 billion since 2013.
“This dynamic is consistent with the post-pandemic recovery, and it is unclear if it will remain at similar levels in 2023,” the document considers. However, this annual report also recorded an increase in the weight of these flows in regional GDP, coming to represent 4.0%,” the ECLAC study specifies.
“The challenge of attracting and retaining foreign direct investment in Latin America and the Caribbean that effectively contributes to the sustainable and inclusive productive development of the region is still more relevant than ever,” said ECLAC Executive Secretary José Manuel Salazar-Xirinachs, who presented the main conclusions of the study at a press conference in Santiago de Chile.
“There are new opportunities in an era of reconfiguration of global value chains and geographic relocation of production in the face of changing globalization,” he stressed before emphasizing that the challenge is to “maximize the contribution of FDI to development” with “aggregation policies of value and promotion in value chains, development of human resources, infrastructure and logistics, and construction of local capacities,” he indicated.
Brazil is the leader in foreign investment in Latin America and the Caribbean
According to the report, almost all the countries of Latin America and the Caribbean received more foreign direct investment in 2022, with Brazil, which received 41% of the regional total and ranked fifth as a global FDI destination at the top followed by Mexico (17%), Chile (9%), Colombia (8%), Argentina (7%) and Peru (5%).
Costa Rica, for its part, was the primary recipient of foreign direct investment in Central America, while in Guatemala, these flows registered a significant drop in 2021 but returned to their historical average the following year.
The United States and the EU are the leading investors
At the regional level, 54% of foreign direct investment in Latin America and the Caribbean entered the services sector, although the manufacturing and natural resources sectors rebounded.
As for investors, the United States (38% of the total) and the European Union (17%, excluding the Netherlands and Luxembourg) led the investment inflows. Along the same lines, FDI from countries in the same region of Latin America and the Caribbean significantly jumped from 9% to 14% of the total.
“The variation in FDI inflows was also positive in the Caribbean, driven mainly by higher investments in the Dominican Republic, which was the second recipient country after Guyana,” according to the ECLAC study.
In 2022, the amount invested abroad by Latin American transnational companies, known as translatinas, reached historical levels: 74.7 billion dollars. This is the highest figure recorded since statistics began to be compiled in the 1990s.
On the other hand, the amount of FDI project announcements for investment in Latin America and the Caribbean grew by 93% in 2022, totaling close to one hundred billion dollars.
For the first time since 2010, the hydrocarbons sector (coal, oil, and gas) received the most investment, with 24% of the total, followed by the automotive sector (13%) and renewable energy (11%).
Energy transition
The ECLAC study also identifies energy transition as one of the sectors that can boost economic growth and therefore recommends that the countries of Latin America and the Caribbean prioritize it in their economic agendas and make it a significant driver of productive transformation in the region.
“FDI can play a key role in accelerating the energy transition, facilitating technology transfer, and enabling emerging technologies. Governments must lead the coordination of strategies for the success of the energy transition in the region,” stresses the Commission in its report.
One of its central functions is to develop long-term policies that promote investment in Latin America and the Caribbean in renewable energy sources so that the transition is fast and safe and does not leave the region behind in a context in which energy from clean sources is a competitive factor,” notes the study.
“However, ECLAC also warns that in this process, the importance that the non-renewable energy sector still has for some countries in the region should be considered, especially in terms of income generation to meet social demands, productive development, and energy security” the report concludes.